Zambia is one of the sub-Saharan African countries with the highest rates of HIV/AIDS prevalence in the world. One in seven adults is HIV positive and the epidemic disproportionately affects better educated and wealthy Zambians who have a prevalence rate almost twice that of uneducated and poor Zambians. As HIV/AIDS-related morbidity and mortality is concentrated among people of prime working-age, its impact on the quantity and quality of the workforce is expected to have considerable adverse effects on economic activity and the welfare of households. There is no agreement on whether HIV/AIDS retards economic growth because it affects both the supply and demand of goods and services, despite it being acknowledged as a humanitarian catastrophe. This thesis undertakes simulations with a computable general equilibrium (CGE) model of Zambia to estimate the impact of HIV/AIDS on the Zambian economy and well-being of Zambian households. Survey data are used to estimate whether HIV/AIDS adversely affects the willingness of public sector workers to live and work in rural areas where they are a vital ingredient into the economic development process of rural areas. Simulation results show significant reductions in gross domestic product (GDP) and investment at high prevalence levels like Zambia's. Sectoral output is found to decrease in all sectors especially in the labour-intensive sectors. Household incomes and consumption, for both urban and rural households, decrease leading to reduced household welfare. Results also show that a high prevalence rate leads to a reduction in the country's trade deficit. This result is driven by the larger reduction in imports relative to exports as household incomes decrease. Probit regression estimates of the willingness of public sector workers to live in rural areas found no evidence to support the view that HIV/AIDS would retard rural economic development by reducing the willingness of public sector workers to live and work in rural areas. To the contrary, HIV/AIDS variables tended to raise the probability of willingness. This thesis contributes to the body of evidence suggesting that HIV/AIDS has considerable adverse effects on economic development. By using an analysis method that takes into account the inter-relationships among the different sectors and institutions in an economy, the results are likely to be more robust and reliable than those from partial equilibrium analyses. As a means of reversing the adverse impacts of HIV/AIDS, this thesis recommends a shift in public policy from a focus on provision of free antiretroviral therapies to a focus on prevention of new infections.